After meetings with top regulators, Eli Lilly ($LLY) has opted to forgo filing for U.S. approval of its closely watched Alzheimer's candidate solanezumab. Instead, the Indianapolis-based drug giant will embark on a new Phase III study to further investigate whether the antibody therapy slows cognitive declines in patients with the memory-robbing disease.

Lilly's two late-stage trials of the treatment crashed and burned this summer on measures of cognitive and functional status in patients with mild-to-moderate Alzheimer's disease. Yet data from patients with mild disease showed a 34% reduction in cognitive decline, giving Lilly hope for the therapy that targets amyloid-beta and raising the prospect of the company filing for approvals. Not so fast, it turns out.

Next year the company aims to begin a Phase III study in patients with mild disease to bolster the data set in support of its hope that it could have an effective drug. The company is working out the details of the next big study's design, and plans call for launching the trial by the third quarter of 2013. It's likely that the additional study delays potential U.S. sales of the therapy by years. Yet an approval could give Lilly a multibillion-dollar product, making the company inclined to take a bet on another late-stage trial even after the two previous studies failed.

"Based on both the independent analyses by [an academic research consortium], as well as our own, we believe the results demonstrating a slowing of cognitive decline in patients with mild Alzheimer's disease treated with solanezumab are the first data from Phase 3 clinical trials that support the amyloid hypothesis," said Eric Siemers, senior medical director of Lilly's Alzheimer's disease team, in a statement.

Analysts largely expected Lilly to hold off on seeking FDA approval based data from the failed Phase III studies, and an analyst from Leerink Swann noted that the stock would take a hit today but Lilly made the right call for the long run.

"Given wide-ranging investor expectations, we'd expect Lilly to be down at least $1 on this news," said Seamus Fernandez, a Leerink analyst who's been following the 'sola' saga, wrote this morning. "However, we believe it is the right decision for solanezumab as it avoids setting up what we believe would have been a negative catalyst."

Lilly is in a heated race to gain approval of a new therapy that could be the first to alter the course of Alzheimer's, which afflicts more than 5 million Americans. Yet the industry's bold gambles in Alzheimer's, including Pfizer and Johnson & Johnson's Phase III flop with bapi this year, have left a long trail of failed programs and no approved drugs that can reverse the course of the chronic disease.